Journal of Financial Economics 88 (2008) 355–374
Ex-dividend day trading: Who, how, and why?
Evidence from the Finnish market
Helsinki School of Economics, P.O. BOX 1210, Helsinki 00101, Finland
Received 15 November 2004; received in revised form 7 August 2006; accepted 12 December 2007
Available online 25 March 2008
This study examines the ex-dividend day trading behavior of all investors in the Finnish stock market. Consistent with
dynamic dividend clientele theories, investors with a preference for dividend income buy shares cum-dividend and sell
ex-dividend; the reverse is true for investors with the opposite preference. Investors also engage in overnight arbitrage,
earning on average a 2% overnight return on their invested capital. Trades at the investor-level reveal that idiosyncratic
risk is an important determinant in the choice of stock for short-term ex-day trading. Furthermore, transaction costs and
dividend yield jointly determine whether the volume of short-term trading activity is nonzero.
r 2008 Elsevier B.V. All rights reserved.
JEL classiﬁcation: G35
Keywords: Ex-dividend day; Tax arbitrage; Dividend clientele
Very few overnight share price changes convey as much fundamental information as stock returns on the ex-
dividend day. Elton and Gruber (1970) introduced the idea that ex-day returns could be used to test whether
personal taxes affect security prices and to infer the identity of the marginal investor. In more than three
decades, hundreds of studies have examined the ex-day price behavior of stocks to ﬁnd out the identity of the
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An earlier version of this paper was included as part of dissertation at Helsinki School of Economics. I would like to thank two
anonymous referees, Matti Keloharju, and Samuli Knu
pfer for extensive comments and Juhani Linnainmaa for help in computing capital
gains. Seminar and workshop participants at Helsinki School of Economics, Finnish Doctoral Programme in Economics, FMA European
Conference 2005, Sean Cleary, Ari Hyytinen, Juha-Pekka Kallunki, Markku Kaustia, Matti Kukkonen, Eva Liljeblom, Antti Pirjeta
Puttonen, Kristian Rydqvist, Hersh Shefrin, Arto Thurlin, and Jussi Utriainen provided valuable comments and suggestions. In addition,
ﬁnancial support from the Academy of Finland, the Finnish Foundation for Advancement of Securities Markets, Graduate School of
Finance, Helsinki School of Economics Foundation, Okobank Group Research Foundation, Yrjo
Uitto Foundation, and the Wihuri
Foundation is gratefully acknowledged.
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